Tuesday, September 06, 2016

Five years ago I did a series of posts – actually only three
– which I titled “Thinking Things Through.” I no longer recall why I abandoned
the title after “Part III.” But I’ve decided to resurrect it now for a new
series of posts with the idea that it’s an appropriate time to reflect on where
matters stand as the Tom Wheeler-led Federal Communications Commission
(presumably) draws to a close – and to look ahead.

In these “Thinking Things Through” posts, I intend to engage
in such thinking at a fairly high level – a “macro” level if you will – rather
than to address the nitty-gritty details that typify argumentation in
particular proceedings. I understand, of course, that in many instances the
nitty-gritty details are important, perhaps even determinative, and that they necessarily
are a subject of dispute. But often, in the context of such back-and-forth
dueling arguments, larger principles and ideas get lost – or deliberately
ignored – in the minutiae.

So, at least for the purpose of these “TTT” posts, I propose
to address some matters of importance in the context of the larger ideas and
fundamental principles involved. And I propose to do so with a commitment to
brevity consistent with my purpose.

So, I begin first with the topic of “Competition and
Regulation.”

Early in his tenure as FCC Chairman, Tom Wheeler regularly
touted what quickly became a mantra, “Competition, Competition, Competition.” And
in his maiden
speech at Ohio State University in December 2013, Mr. Wheeler articulated
his so-called “see-saw” rule: “When competition is high, regulation can be
low.” A couple of months later at the University of Colorado Law School, he repeated
the see-saw rule in the exact same words: “When competition is high,
regulation can be low.”

And to boot, Mr. Wheeler quoted Abraham Lincoln’s Second
Inaugural Address to the effect: “As our case is new,
so we must think anew, and act anew.”

I submit that when it comes to
“competition and regulation,” the FCC’s actions under Mr. Wheeler’s leadership have
been characterized by anything but “thinking anew.” Rather, they have been
characterized by old thinking more fitting for the long-gone age of Ma Bell.

When I hear Mr. Wheeler’s
“competition, competition, competition” mantra, or his “see-saw” rule, a
different Lincoln quote comes to mind. In his April 1864 “Address
at a Sanitary Fair,” Lincoln said: "We
all declare for liberty; but in using the same word we do not all
mean the same thing."

Like “liberty,” the word “competition” is accorded near
universal approbation. But it should now be clear that in declaring for “competition”
– even in triplicate! – Mr. Wheeler has a particularly narrow definition of the
word in mind, a definition that does not comport with that of many respected
regulatory economists and experts. And Mr. Wheeler has a particularly seductive
purpose in mind as well: By adopting the narrowest, most restrictive view of
the relevant market, he tilts his self-constructed see-saw towards more
regulation.

We have seen this strategy play out over and over again
during Mr. Wheeler’s tenure. A few examples:

In adopting the Open Internet order, the Commission concededly did not perform any meaningful
analysis of the Internet access market in a traditional sense, for example, by
determining the number of competitors, their market shares and market trends,
the prospects for additional competition, and the like. The agency did not
conclude a real market failure existed. Instead, it rested its findings
regarding Internet service providers’ claimed market power on a flimsy
“gatekeeper” theory premised on the asserted difficulty and costs subscribers
confront in switching from one ISP to another. Note that this theory
necessarily is premised on the fact that there is actually more than one
competitor in the market.

In proposing to regulate Business Data Services
(formerly Special Access), the Commission suggests the relevant market for
assessing competition may be as narrow as a single building, even though, as
former FCC Chief Economist Tim Brennan explained in a recent Free State
Foundation Perspectives, defining a geographic
market as a building location does not make sense as a matter of market
analysis. Moreover, the Commission appears intent on downplaying cable
operators’ expanding BDS offerings in assessing marketplace competition, and
downplaying the prospects for even further competition attributable to cable
operator offerings.

Aside from all its other problematic aspects,
the Commission’s proposal to adopt a new “open standard” mandate regulating the
design functions and capabilities of video navigation (set-top box) devices
ignores the plethora of choices consumers now have for receiving video
programming from new video distribution services, devices, and apps. And, while
the Commission considers a new government-imposed technical mandate, additional
choices for distributing and viewing video programming become available almost every
week.

As the Commission engages in what has become an
ongoing charade of completing congressionally-mandated reports assessing
competition in the mobile services and video services markets, and assessing
the timeliness and reasonableness of broadband deployment, it consistently
departs from past practice by simply refusing to determine the relevant markets
are competitive. Among other devices, it does this, as pointed out in a recent
Free State Foundation Perspectives
by my colleagues Seth Cooper and Michael Horney, by refusing to acknowledge the
substitutability of wireless and wireline services. And with regards to determining
the reasonableness of broadband deployment, the Commission simply continually redefines
“broadband” to narrow the extent of its reach in order to prevent the agency
from making an affirmative reasonableness finding. This ploy, however divorced
from the reality of actual consumer demand and expectations, allows the agency
to claim a justification for further regulation.

Other examples could be provided. But the ones I have
highlighted above show how the Commission all too frequently employs the stratagem
of improperly constricting a relevant geographic or product market in an effort
to portray a lack of competition – and thereby the need for maintaining or
increasing regulation.

I have always acknowledged that there may be some specific
geographic and product markets that, because of a lack of effective
competition, should be subject to proper regulatory oversight by the
Commission. But to go back to Mr. Wheeler’s metaphor, I do mean, emphatically, to
say that the see-saw should not be artificially tilted towards regulation by
misusing or misconstruing marketplace data in efforts to conclude competition
does not exist where it surely does.

Finally, this note on a fix: With a relatively modest change
to the Communications Act, Congress could prevent the invocation of mantras
such as “competition, competition, competition” from substituting for rigorous
economic analysis that fairly accounts for the dramatic changes that have taken
place – and continue to do so – in most segments of the communications marketplace.
As I first suggested in a Free State Foundation Perspectives
five years ago, in recognition of the increased consumer choice that has
occurred in the last two decades, Congress should require the FCC to presume,
absent clear and convincing evidence to the contrary, that effective
competition exists in those instances in which the agency assesses market
competition.

This simple rebuttable evidentiary presumption would not itself determine the outcome of any particular proceeding. But it would make it more
difficult to avoid evidence-based findings of effective competition by
stratagems designed to tilt the see-saw in the regulatory direction.